Tax havens may lose their charm

Prabhakar Sinha, ET BureauApr 3, 2009, 11.06am IST

NEW DELHI: The heads of G-20 countries are planning to clamp on the tax havens that do not comply with anti-secrecy requirements. The heads are also likely to publish a list of tax havens, where many companies get registered to avoid payment of taxes.

Such measures are aimed at improving the tax mobilization of a country. A country can tax companies which are bringing in investments from such island havens. These measures will also make the system transparent. A senior official in the finance ministry said that this will also curb the flow of illegal money.

At present a number of countries like Cayman Island, Bermuda Island and Bahamas among others are used by companies to channelize investments in different countries. These countries do not levy taxes on incomes earned from investments made in other countries. Many companies and individuals use these countries to invest in other nations.

PwC ED Rahul Garg said if these steps are implemented uniformly by all the countries, no shifting of investments will take place. There is an apprehension that if a particular country starts levying taxes on income earned by the investments made from tax havens, those investments will shift to other nations, which are not levying such taxes. But, if all countries impose tax on investment from such destinations, companies will have no choice but to remain invested as the shifting will not ensure tax-savings.

A senior tax official said companies invest illegal money through these tax havens and it is difficult to ascertain the source of funds.

A source said that trillion of dollars have been canalized through these tax havens to various countries. If the taxes are collected on the income earned from these investments, it will generate hundreds of billions of dollars for the global economy. Therefore, the G-20 countries are taking a serious view on this issue, the official said.